A. Legislation, Trends and Tendencies
International arbitration in Kyrgyzstan continues to be governed by the Law On Arbitration Courts (the “Law”), enacted on 30 July 2002, to which no legislative amendment was made in 2014. The Law is based on the UNCITRAL Model Law.
A.2 Trends and Tendencies
During 2015, provisions of the Law relating to arbitration costs and the final and binding effect of local arbitral awards were challenged, respectively, in the Constitutional Chamber of the Supreme Court. In both cases, the Constitutional Chamber confirmed that these provisions do not contradict the Constitution of the Kyrgyz Republic. These cases show the pro-arbitration position of the Constitutional Chamber.2
At the same time, the government proposed to include in the new draft of the Civil Procedure Code, currently being reviewed by the Kyrgyz Parliament, special provisions that set forth rules for challenging arbitral decisions issued in Kyrgyzstan. This proposal of the government was based on concerns that even if local arbitral awards contradict public policy, they still cannot be set aside by local courts. The fact that the government raised such concerns shows that arbitration has been used in Kyrgyzstan more frequently, and the government would like to have additional rights with which to defend public interests.
While recent court decisions relating to the enforcement or setting aside of arbitral awards are generally in line with international practice, it should be noted that the Kyrgyz courts do not have a wide range of experience with arbitration-related cases, and this lack of experience can lead to controversial decisions.
B.1 Bankruptcy Proceedings Cannot Be Used to Evade Arbitration
In 2015, the Supreme Court completed the review of a case where a creditor tried to commence insolvency proceedings against its local debtor in local courts, regardless of the fact that the contract between these parties provide for the settlement of disputes between parties in arbitration.
The local debtor objected to this application by the creditor, claiming, among other things, that by commencing bankruptcy proceedings, the creditor was trying to evade the contractual dispute resolution clause, which provided for pre-arbitration negotiations and the settlement of disputes by arbitration.
As a result of the review of this case, courts of all levels supported the position of the debtor and dismissed the creditor’s bankruptcy application. This case illustrates the pro-arbitration approach of local courts.
C. Costs in International Arbitration
C.1 Allocation of Costs
Issues relating to arbitration costs are regulated by Section 6 of the Law (Articles 38 and 39). Under these provisions, arbitrators have a right to determine rules for allocation of costs based on their discretion.
The most famous local arbitration institution – International Arbitration Court at the Chamber of Commerce and Industry of the Republic of Kyrgyzstan (IAC) – has its own rules relating to arbitration costs (“IAC Costs Rules”).
Under these rules, only a party who prevails as a result of arbitration proceedings has a right to seek the reimbursement of its costs in proportion to the granted or declined claims, unless otherwise agreed by the parties. However, arbitrators may grant a party’s claim for reimbursement of its costs regardless of the result of the case if these costs are caused by the mala fide behavior of the other party.
C.2 Security for Costs
The Law and the IAC Costs Rules do not allow parties to seek any special security for their costs relating to arbitration proceedings. However, parties have a right to seek interim measures in local courts, along with security for the main claim.
C.3 Recovery of Costs
As stated above, issues relating to the recovery of costs are regulated by the applicable arbitration rules or the agreement between parties of arbitration.
Under the general provisions of the IAC Costs Rules, arbitrators have a right to order the recovery of parties’ actually paid costs, including representation costs, in proportion to granted or declined claims.
While this issue is not addressed in the IAC Costs Rules, local arbitrators usually do not consider the costs of a party’s in-house counsel and other members of a party’s staff as recoverable.
The Law and the IAC Costs Rules do not set forth any limits or guidelines for the determination of the amount of representation costs that can be recovered by parties. Therefore, these issues are settled by an arbitral tribunal on its own discretion based on the reasonableness and necessity of such costs. In practice, local arbitrators are reluctant to order the full recovery of significant legal fees charged by reputable international law firms. The amount of costs should be supported by relevant evidence, such as engagement agreements, invoices and bank statements.
- Alexander Korobeinikov is a senior associate in Baker & McKenzie’s Almaty office and a member of the International Arbitration Practice Group and the Firm’s Global Dispute Resolution Practice Group.
- Under Kyrgyz Law, the Constitutional Chamber of the Supreme Court is reviewing claims challenging Kyrgyz laws based on the assumption that these laws contradict the Constitution.